Key changes to Bermuda funds classifications

  • Sarita Ebbin of Appleby

    Sarita Ebbin of Appleby


Bermuda has adopted amendments to the island’s investment funds regime to ensure that regulatory oversight and supervision of the investment funds industry by the Bermuda Monetary Authority is in line with shifting international standards.

The amendments were adopted under the Economic Substance Act 2018 (Substance Act) which became operational on December 31, 2018. The Substance Act has a broader mandate to address concerns raised by the European Union with respect to perceived harmful tax practices across member states as well as third countries such as Bermuda.

Funds are not within the scope of the Substance Act although a Bermuda incorporated fund manager may be subject to economic substance requirements and will need to assess whether the new requirements are applicable.

In addition to these new economic substance requirements, the Substance Act also introduced legislative changes to the Investment Funds Act 2006 (IFA):

• References to Excluded Funds, being a fund with fewer than 20 investors that does not promote itself by communicating an invitation or inducement to the public generally, have been removed and have been replaced with the term Private Fund. The term Excluded Fund(s) can no longer be used interchangeably with that of Private Fund(s).

• Exempted Funds will now be known as Professional Funds. Exempted Funds included Class A Exempt Funds and Class B Exempt Funds which will now be known as Professional Class A Funds and Professional Class B Funds.

• Professional Funds and Private Funds will collectively be known as Registered Funds.

• The current self-certification process (for Class A Exempt Funds), procedure for exemption (for Class B Exempt Funds) and notification process (for Private Funds) is no longer available. New Registered Funds now must apply to the BMA for registration and approval before commencing trading.

• Private Funds must appoint a local service provider authorised and regulated by the BMA. The IFA expanded the definition of “service provider” to include corporate service providers; as such, most funds will meet the local service provider requirement through the engagement of a Bermuda corporate services provider.

Private Funds are now required to appoint a custodian to ensure safekeeping of the fund’s assets. The BMA may waive the requirement if the Private Fund meets certain requirements set by the BMA. The operators of a Private Fund must also certify annually that it satisfies the qualifying criteria and the requirements for registration and will continue to satisfy them on an ongoing basis. The operators must also file annually:

• Information on the fund’s net asset value and its underlying assets;

• A copy of the fund’s management accounts or audited financial statements; and

• Information on any material changes that took place during the year.

An additional change to note is the requirement for a Private Fund to file a copy of its offering document with the BMA. Beginning in 2020, Private Funds will also be required to file an annual certification with the BMA.

The existing annual certification for Professional Funds will continue.

Funds that are currently registered with the BMA as Excluded Funds, Class A Exempt Funds or Class B Exempt Funds have until June 30 to comply with any new requirements. The majority of Class A Exempt Funds and Class B Exempt Funds are likely to already substantially comply with the new requirements prescribed under the Substance Act. However, it may be necessary to file additional information, such as details of the authorised and regulated service provider in Bermuda and filing of the fund’s offering document, with the BMA.

Conversely, funds that are Excluded Funds have until June 30 to apply to the BMA for registration as a Private Fund. In making such application, an Excluded Fund must provide the BMA with:

• A copy of its offering document, or if a master fund in a master/feeder structure, the offering document of its feeder fund;

• Information pertaining to its net asset value and underlying assets; and

• A copy of its management accounts or audited financial statements.

We recommend that operators of all Excluded Funds, Class A Exempt Funds and Class B Exempt Funds reach out to the fund’s legal counsel in Bermuda to confirm the applicable filing and/or registration requirements.

Sarita Ebbin is an associate in the Corporate department at Appleby. A copy of this column can be obtained on the Appleby website at www.applebyglobal.com

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer

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Published May 23, 2019 at 8:00 am (Updated May 22, 2019 at 7:12 pm)

Key changes to Bermuda funds classifications

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